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While the Automobile After-Market which I cover as an analyst is not at the upper end of a guru’s relevant attention, it bears repeating that whilst the fashion isn’t on the innovation words of « just in time », the accent remains, and the practice demands for such performance are at the extreme. Distributors notably are bearing untold ills from the high cost of inventory. Retailers have shifted that cost through draconian demands and contracts of adhesion to the distributor. The distributor seeks as best he can to shift it with more difficulty upon the manufacturer. Few manufacturers have mastered the purchasing, manufacturing and logistics problems as well as Falken Industries, best known for its conceptions marketed under the Clean Plus® brand, and I undertook to discover their secret. Mastering the high cost of inventory need not be an unattainable goal for a distributor and strangely enough, the benefit seems to inversely relate to the size of the manufacturer, at least in this case and in this industry. The key component though is determination, support and processes of the manufacturer whose goods the distributor represents and purveys. For this article, and in order to ensure the veracity of the inversed relation to size and service, I visited three of the best known manufacturers in this industry; a large multi-national colossus in Ohio, a medium specialty product firm in Illinois and Falken, a small publicly traded company in New Jersey. All companies are extensive global players but only the last had the majority of its operations outside the United States. The most interesting responses were outlined in three questions which I posited to Manuel Garcia, Communications Officer at Falken. My three questions and the answers were as follows: 1. How has Falken provided the support and integrated the process to service its 380 worldwide distributors and 68 landing platforms? Garcia: “Our stock support program concerns the entirety of the professional actors in the Automobile After-Market ; let’s face it, distributors, manufacturers and retailers are submitted to the same constraints. We were consequently collectively compelled to review our entire stock and inventory strategies. To finance a stock for 380 distributors, taking even only one of our product groups, is a costly prospect. Consequently to reduce the effective cost to our distributors, we have made substantial improvements to our network of proximate global distribution platforms by enhancing the benefits for those platforms as outlined in our Strategic Alliance Agreements also known as Super Distribution Agreements. Consequently our distributors have no problems of excess inventories. They can be in possession of stock merchandise in day +1 in 83% of our markets and day plus overseas or road transport everywhere else.” The conclusion to be taken is that proximity of distribution and production centers is the first key element to reducing inventory costs. The economies of centralized logistics are overwhelmed by the inefficiencies in transport and delays. 2. What do you think of the concept of sales on line, on the Internet? Garcia responded “In some of our markets, in France notably, the activity of selling on line is experiencing major growth. Nevertheless it is but 2% of our distributor activity, though one would imagine that exponential growth can be anticipated. The key point is for the distributor and the manufacturer to ensure a coherence in both price and terms of sales and to make sure that each service is value added, paid for, and understood by the consumer, i.e. advise, warehousing, hotline, after-sale service etc. We believe in a likely development for these sites, and believe that their market share will expand notably with the DIY (Do it yourself) client base. These on site “InterShops” seem to respond to the need of the consumer who has become savvier with the internet, but more demanding in service with legislation in strong support.” The conclusion to be drawn is that while it is possible through a centralized picking center to administer these internet orders, it is far more efficient and consequently cost effective to do so from a proximity landing platform, so that even this up and coming novel business medium is enhanced by proximity logistics and productions. 3. What are your priorities in terms of development with your distributors? Garcia smilling, continued: “The key word is support: We develop services directly targeting our distributor’s verified and acknowledged needs and by extension the needs of their customers. The most known of our support programs is our uniform global pricing strategy which subsidizes differences in purchasing power in our various markets. However not to be discounted is our monumental emphasis on training, and dissemination of logistic and technical information which are at the heart of our distribution strategies. We recently launched the Clean Plus® Service concept which includes a number of loyalty building components and financial, pricing and logistical models. Also, independent of this concept we propose extensive training for our distributors. Finally, in the scope of our implantation efforts, we heavily subsidize through discounts or outright support payments the effort, because our ultimate objective is to ensure the availability of innovative new products in all global markets within three months of their introduction.” And thus the lesson to be drawn is that proximity of production and logistic is the key to addressing the high cost of Inventory management, ensure flexibility and response time and acknowledge that the future belongs to the smaller innovative companies rather than their collosal competitors whose activity in the industry is incident or collateral in its smallest terms.
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